How do you manage illiquid assets?

What assets does your business hold? Beyond property and equipment, you may have other assets – especially if you operate a farm or work with natural resources. These kinds of nontraditional assets, often called illiquid or special assets, can be more difficult to manage, especially when your company is going through a change. At those times, a special asset manager can be a useful ally, but many business owners aren’t aware of the value they provide. To help you understand what a special assets manager does, we gathered answers to some frequently asked questions.

What are special assets and what makes them special?

Special assets are typically private business interests, properties or natural resources that can be difficult to convert directly to more liquid investments, like cash. They may also be called illiquid assets.

How do people usually acquire their special assets?

Owners acquire special assets in a variety of ways – some build them from the ground floor up while some acquire them through purchases or a generational transfer. If a business owner of any enterprise retires or suddenly passes away, the burden of operations can sometimes fall on family members who may not be prepared or want to carry on in the same way. Businesses involving natural resources, such as farming, forestry, and mineral interests, require specialized knowledge. That’s often the time when people seek help to continue business operations or determine an appropriate transition for the family as they see fit.

What does a special asset manager do?

A special asset manager puts professional resources in place to manage all kinds of ongoing enterprises, including family-owned businesses, which can be structured as corporations, limited partnerships or limited liability corporations. There are also professional asset managers who take care of real estate assets such as farm acreage, residential real estate, office buildings and timber properties, as well as mineral assets, including oil and gas.

When is it a good time to engage the services of a special asset manager?

Usually when your business is in transition, whether that is prompted by a change in ownership, a death in the family, or some other major event that causes a disruption in normal operations. In the case of a closely held firm, for example, an appointed family member or trustee involved in a transition may be inexperienced in business operations and find themselves overwhelmed when they’re suddenly responsible for day-to-day business activities. They may not possess the industry knowledge to keep the business operating smoothly, and the special asset manager can help facilitate.

When looking for a special asset manager, look for a firm with the ability to purchase, profitably manage or sell special assets under one full-service money management roof. It can be hard to find, but it can make things more efficient and save time.

What’s an example of how someone might profit from working with a special asset manager?

Commerce Trust Company worked with a married couple with a large farming operation who were faced with tough financial choices when the husband suddenly passed away. The wife faced the prospect of taking over an operation of several thousand acres of farmland worth millions of dollars. She had a deep empathy for the many long-time business partners who had been her husband’s key tenants, and she reached out to for help in transitioning the assets.

The wife decided to bring in a Trust Company special asset manager to assist her in reaching her goals for the property. As not all the interested tenants could immediately raise the funds to purchase the parcels, the manager enlisted an outside agent to list portions of the acreage for sale and auction at the best value for the family. This gave the pool of potential buyers fair access to the assets. The complexity made it too big a task for a single person to manage – let alone someone not accustomed to dealing with large-scale operations.

Why is this a tough “do it yourself” pursuit?

A professional special assets manager skilled in managing properties or ongoing businesses can spot opportunities that those without the specialization or appropriate skill set may miss. For example, a manager might recognize that valuation mistakes are more likely to occur when there are many minority interest holders in a property. They may be able to better market – and command a significantly higher selling price – for a client who has a minority interest in a large tract.

When your business is experiencing a transition, working with an experienced special asset manager can make the process smoother and more profitable. If you find yourself facing business responsibilities outside of your depth, or are dealing with more complicated family business or real estate issues, you could stand to benefit from working with a special asset manager. Aim to work with someone with significant experience in your industry. If you find yourself wanting to develop a coordinated management or transition plan for an ongoing business or property, you can contact Commerce Trust Company for assistance.

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